Tax Reform and Debt Sustainability in Germany: An Assessment Using the Global Fiscal Model

32 Pages Posted: 4 Mar 2007

See all articles by Dennis P. J. Botman

Dennis P. J. Botman

International Monetary Fund (IMF) - Fiscal Affairs Department

Stephan Danninger

International Monetary Fund (Research Department)

Date Written: March 2007

Abstract

In 2005, the German government announced a far-reaching fiscal adjustment program. This paper uses the IMF's Global Fiscal Model to study its impact and explores options for addressing long-term pressures from population aging. The growth effects of the planned VAT increase are likely modest, largely owing to the stimulating effect of other tax reductions. The reform will improve the long-term debt path but achieving fiscal sustainability requires further adjustment over the medium term. An additional package of expenditure restraint, entitlement reform, and tax-base broadening compares favorably to other adjustment options. Spillover effects to trading partners of these policies are modest.

JEL Classification: E62, F47, H20, H30, H63

Suggested Citation

Botman, Dennis P. J. and Danninger, Stephan, Tax Reform and Debt Sustainability in Germany: An Assessment Using the Global Fiscal Model (March 2007). IMF Working Paper No. 07/46, Available at SSRN: https://ssrn.com/abstract=967887

Dennis P. J. Botman (Contact Author)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Stephan Danninger

International Monetary Fund (Research Department) ( email )

700 19th Street, NW
Washington, DC 20431
United States

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